What a ride we are having in FX markets at the moment. The intraday volatility, short term trends then trend change must be doing traders heads in. After a breif 12-18 hours where the US dollar was a little weaker it took back the ascendancy again overnight knocking the Euro and Pound lower and completely reversing the Aussies misguided post GDP strength.

Looking first at the Aussie the GDP result of 0.6% was almost entirely a construct of the Government sector. yes Australia had a positive contribution from Net Exports but as our colleagues at MacroBusiness pointed out after the data was released it was the transfer of some large projects into public hands that was the big driver. Otherwise Australian GDP went backwards.

This is one of our big issues with the release of statistics such as GDP over the past 25 years the number of times that we have seen the data distorted by these sorts of Government outcomes on either side of the ledger is amazing. Indeed it cost us money yesterday as we were fairly sure the Australian economy has been weak and that we’d see a result lower than the 0.6% expected. So we were short going into the figure at 11.30 yesterday – back to the usual rule of not punting figures because they are so random – a lesson relearned.

Obviously the post data rally and the ludicrously positive reporting in the press initially didn’t bother to delve deeply enough into the data and the rally fizzled overnight with the Aussie’s high at 1.03 reversing and the Aussie now sits at 1.0237. The Aussie chart is a bit ugly trading roughly 200 points in the past 3 days and back towards the middle of the range again today. At least in a Darvas sense we can say the Aussie is in a 1.01/1.03 box and trade that range but on our usual indicators it still seems to be biased lower.

On the 1 and 4 hour charts it looks like the Aussie is biased back toward 1.0215 and if it falls through this level it could cascade lower.

In the US the ADP Employment report showed the economy added 198,000 private jobs in February which was higher than the 175,000 that the punditry had expected which helped the US dollar strengthen against the Euro and the pound. Equally the confirmation with the latest read of the EU GDP that the EU went backwards 0.6% in Q4 2012 and 0.9% in 2012 as a whole just highlights the dichotomy between the US economy trying to recover and a central Bank in the Fed doing its darnedest to get it moving and a moribund EU economy with a central bank and political class that wants to shrink its way via austerity to growth.

Impossible!

This morning the Fed released the Beige book which showed that Government fiscal and health care policies are holding back private spending and hiring. Higher petrol prices are also weighing on consumers but 10 of the 12 Federal Reserve districts are growing modestly with Boston and Chicago’s growth is slow.

Of course that is not a great result but in the relative ugly contest that is global FX markets slow or modest growth is still better than no growth.

Looking at the Euro’s price action we’d say that the move toward 1.2650 might have stalled for the moment but we remain committed that it is coming. While above 1.2970 it is holding but a fall through here will signal the next move lower. Our trend systems are still short.

Turning to Japan and the trend toward Yen weakness might have slowed recently in a market sense but China is clearly watching and concerned. Overnight the President of the Chinese Wealth Fund the CIC Gao Xiqing had some fairly forthright thoughts for Japan when he said,

Treating the neighbors as your garbage bin and starting a currency war would not only be dangerous for others but eventually be bad for yourself,

Strong words but what the Chinese might do about it is a different thing because they are already keeping their currency artificially weak and would have to deal with the Americans if they do try something but those old currency warriors seem to be sharpening their swords.

Chart wise the USDJPY was up overnight but is still yet to take out the recent high on the dailies. Has the recent reversal built momentum for a further rally? Possibly, a break of the recent high would confirm.

With an hour and 5 minutes to go in North American trade the Dow is up 0.42%, the Nasdaq is up 0.09% and the S&P has risen 4 points or 0.27% to 1544. In Europe the FTSE fell 0.06%, the CAC dropped 0.35%, Milan’s stocks dropped 0.47% and in Spain stocks fell 0.76%. In Germany the DAX bucked the trend and rallied 0.62%.

The S&P’s rally is still constrained by the trendline we highlighted yesterday as you can see in thee chart above.

On commodity markets Nymex crude is off 0.44% which isn’t aa bad result when you take into account the massive build in EIA inventories last week. Crude looks a lot like the Euro chart insofar as there might be a shorter term floor around the recent low at $89.30. While it holds Crude can build a base but a move through here could open a substantial push lower, perhaps even back toward $85.00ish Bbl.

Gold is hardly changed at $1575 oz but Silver the more volatile in this precious relationship is up 0.9% to $28.82 oz. Silver is still in a down trend by our usual indicators but the low on the bottom of the down trend channel suggests it might have a slighthly better technical structure and thus more support or impetus to rally than gold.

The Ags were down sharply with Corn off 2.87%, Wheat was 2.12% and Soybeans fell 0.74%

Data

In Australia the AiG Performance of Construction Index is out this morning before the trade data. Then we have the BoJ which will be a potentially huge event for global markets. In Europe tonight French data includes unemployment, Budget for January and trade data. Portugal has a bond auction, German factory orders and then BoE and ECB monetary policy announcements. Of course it is jobless claims night in the US as well.

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